One of the more interesting developments in central banking in the past dozen years or so has been the increasingly widespread adoption of the monetary policy framework known as inflation targeting. The approach evolved gradually from earlier monetary policy strategies that followed the demise of the Bretton Woods fixed-exchange-rate system--most directly, I believe, from the practices of Germa...

This paper outlines what inflation targeting involves for emerging market/transition countries and discusses the advantages and disadvantages of this monetary policy strategy. The discussion suggests that although inflation targeting is not a panacea and may not be appropriate for many emerging market countries, it can be a highly useful monetary policy strategy in a number of them. Frederic S....

In this comment, we answer the question posed in Svensson’s (2000) paper “Does the P* model provide any rationale for monetary targeting?” – in contrast to him – in the affirmative. We argue that a strategy of monetary targeting can be rationalised within the P* framework. Furthermore, we demonstrate that money growth targeting is a special form of inflation forecast targeting based on a ‘limit...

A general-equilibrium shopping-time model ofmoney demand is used to obtain estimates ofsome dynamic costs ofinflation under alternative monetary policy rules. After examining the welfare implications ofsteady-state inflation, dynamic welfare costs are evaluated for inflation-targeting and price-level targeting regimes in a stochastic setting in which agents are uncertain about the underlying in...

Over the last five years, a number of authors have suggested that targeting inflation rates of, say, less than 3 per cent could lead to significant economic difficulties. In the period prior to the renewal of the inflation target, Bank staff have reviewed the literature and have undertaken new research into this issue. The Bank also held a seminar at which papers by both Bank staff and outside ...

We examine global dynamics under infinite-horizon learning in New Keynesian models where monetary policy practices either pricelevel or nominal GDP targeting and compare these regimes to inflation targeting. These interest-rate rules are subject to the zero lower bound. Robustness of the three rules in learning adjustment are compared using criteria for the domain of attraction of the targeted ...

Optimal Price Indices for Targeting Inflation under Incomplete Markets In models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. In this paper, we develop a twosector two-good closed economy new Keynesian model to study the optimal choice of price index in markets with financial frictions. Financial frict...